AN EXAMINATION OF THE RELATIONSHIP BETWEEN INVENTORY MANAGEMENT AND ORGANIZATIONAL PROFITABILITY IN CAMEROON

CHAPTER ONE

INTRODUCTION

Background of the study

A critical constituent of current assets is inventory. It constitutes approximately 60% of its overall composition.  In order to ensure efficient functioning, each organisation requires inventory.  The function of inventory is to connect production with distribution.  Its primary constituent is current assets, which places it in the inventory management domain. A critical component of working capital management. Inventories comprise the largest proportion of the current assets owned by the business entity. Additionally, it is critical for the efficient operation of business operations.  The majority of corporations allocate a significant portion of their total asset investment towards commodity equities (Ololade, 2018). As a consequence, it is anticipated that the outcomes of the operation and the financial assets of the shareholders will be impacted by the efficiency of inventory management. Frequently, industrial establishments maintain commodity inventories comprising finished goods, semi-finished goods, and raw materials.  The inventory of completed products serves as a safety margin between the production and sales activities, as the company maintains the stock, thereby decreasing the interdependence of the purchasing, selling, and production processes. 

Assets held for sale in the ordinary course of business also qualify as such. Reserves, as defined by Aquilano in Williams (2019), are a compilation of specific articles that are considered essential for any organisation. In most cases, these inventories constitute 20% to 30% of the firm's total investment. They are inactive resources that possess monetary worth. In order to mitigate the impact of industry inflation or enhance the firm's competitive edge in terms of customer desire and demand, Vrat (2014) suggests that either of these strategies can be advantageous in the long run for the firm's profitability.

Working capital management is inextricably linked to inventory management, which impacts both short-term solvency and profitability. Effective inventory management is critical for ensuring the smooth operation of the business. In addition to minimising the cost of holding excessive inventories, inventory management seeks to maximise the use of a company's resources by assuring a sufficient supply of materials for the production process (Earl, 2019). Additionally crucial for preventing redundant and unproductive funds is inventory management. This decision regarding strategic management should assist in achieving a balance between excessive and insufficient inventory. The implementation of efficient and effective management practices by the stock/inventory manager will contribute to improved operational outcomes and decreased working capital expenditures. As a result, precise stock management contributes to a consensus regarding the firm's risk exposure and liquidity. According to Macey (2018), inventory management aims to achieve a balance between the benefits and costs associated with holding inventory. Within the realm of management, the inventory manager's decision is influenced by the firm's strategic level and aims to either maximise profit or minimise costs while simultaneously meeting customer demands. This should position the organisation in an optimal replenishment radar.

Inventory management in an organisation, according to Baird (2021), entails the identification of each individual item of stock. The fundamental objective of inventory management is to determine the quantity and location of stocked products. In various locations within a facility or across multiple nodes of a supply network, inventory management is necessary to safeguard the steady and premeditated progression of production from the capricious disruption that may occur due to the depletion of materials or products. The manner in which an organisation can optimise its profits is contingent upon the implementation of efficient inventory administration (Baird 2021). Profit maximisation is contingent upon cost minimization and revenue maximisation. The efficient concept of maximisation entails increasing revenue without expanding resource consumption. The significance of inventory management within an organisation is to guarantee that the capital of the business is not inherently tied down in the form of physical goods in the store, which could potentially facilitate fraudulent activities and larceny. Alternatively stated, the administration seeks to minimise stock losses resulting from store operations. Therefore, in the context of business organisations, stock is critical to the organization's profitability.

Varying degrees of flux Inventory issues involving unsold or overstocked quantities can result in the demise of a company. The occurrence of a critical inventory item running out of stock may lead to production halts for businesses. Therefore, the effective administration of this stockholding economics is aptly termed inventory management (Aloza, 2020).

Due to the fact that inventory represents a significant portion of total investment, effective inventory administration is essential for the growth and profitability of an organisation. The administration of a company's inventory can significantly impact the success or failure of the organisation. Inadequate inventory management can consequently result in stock-outs, which in turn will inevitably cause a decline in consumer loyalty and goodwill, a reduction in the organization's profitability, and ultimately its end; thus, this study is necessary.

1.2 Statement of the problem

The critical roles that inventory performs in the operations of organisations are well understood by managers. Due to the funds allocated to inventory, direct materials can account for as much as 50% of the overall product cost in the majority of organisations; consequently, this has an impact on the organization's profitability (Emile, 2019). Occasionally, organisations fail to exercise control over their inventory levels, which leads to insufficient stock and ultimately prevents them from commencing production. This ultimately undermines the efficacy of the organisation.

On the contrary, ineffective inventory management by management can result in extended periods for inventory conversion and increased inventory costs, which in turn reduce the ability to recycle funds. Consequently, this can have adverse effects on the profitability and liquidity of the enterprises. A significant proportion of business failures have been ascribed to the failure of business managers to effectively strategize and regulate the inventory conversion period and inventory levels of their organisations (Allwell, 2018).

In Cameroon, very little have been done concerning inventory management practices in profit organizations. It is on this note that this study will be examining the relationship between inventory management and organizational profitability in Cameroon.

1.3 Objectives of the Study 

The aim of this study is to examine the relationship between inventory management and organizational profitability in Cameroon. Specifically the study seeks to:

Determine whether inventory management has a significant effect on organizational profitability in Cameroon.

Examine the impact of inventory management on organizational profitability in Cameroon.

Assess the challenges of inventory management in organizational profitability in Cameroon.

1.4 Research Questions

The following research questions will be answered in this study:

Does inventory management have a significant effect on organizational profitability in Cameroon?

What are the impact of inventory management on organizational profitability in Cameroon?

What are the challenges of inventory management in organizational profitability in Cameroon?

1.5 Research Hypothesis

The following null hypothesis will validate this study:

Ho1: Inventory management does not have a significant effect on organizational profitability in Cameroon.

1.6 Significance of the study

This study would be beneficial to different stakeholder’s such as inventory manager’s, Top-level management, Competitors, supplier and customer. The study will be useful for inventory managers to know their optimum stock replenishment status, and how and when tie down stock or ignore replacing stock.

Moreover, top-level management will benefit from the study, to know the feed-back effect of their flow decision from the top-ladder decision and policies that makes the firm. Competitors will be able to know the risk/return (opportunities and treats) that is induced in inventory control and techniques employed by firm. Suppliers will deduce from the study. On how their defect in supplying needed raw-material which will be transformed into finished goods affect the sector. Customers will have firsthand knowledge on how important their demand direct the profit or loss prospects of the firm.

1.7 Scope of the study

The study aims to examine the relationship between inventory management and organizational profitability in Cameroon. Empirically, this study will examine the impact of inventory management on organizational profitability, determine whether inventory management has a significant effect on organizational profitability and assess the challenges of inventory management in organizational profitability.

This study will be carried out in Cameroon.

1.8 Limitation of the study

The researchers encountered slight constraints while carrying out the study. The significant constraint was the scanty literature on the subject owing that the relationship between inventory management and organizational profitability in Cameroon discourse is vast thus the researcher incurred more financial expenses and much time was required in sourcing for the relevant materials, literature, or information and in the process of data collection, which is why the researcher resorted to a limited choice of sample size covering only residents of Cameroon. Thus findings of this study cannot be used for generalization for other regions within Cameroon. Additionally, the researcher will simultaneously engage in this study with other academic work will impede maximum devotion to the research. Howbeit, despite the constraint encountered during the research, all factors were downplayed in other to give the best and make the research successful.

1.9 Definition of terms

Inventory: It can be defined as the available stock, in the warehouse of the firm

Inventory techniques: These are techniques to control, coordinate and utilize stock effectively.

Stock control: Activity process or study of stock ensuring that quantities of stock or raw materials suppliers or finished goods are such that satisfactory services level is maintained for all stock keeping unit while holding cost are minimized.

Stock holder: A firm or a person who has a specified type of sock example wholesalers that has stock of manufactured goods.

Stock level: (Inventory level) this is the level at which sales are kept.

Stock out: This is a state of having in keeping stock or materials for some time example. The rent of storage space the wages of a store keeper the cost of sock records.

Profitability: This is the return gained from stages of production carried out by a firm.

Inventory management: Inventory management is the process of ordering, storing and using a company's inventory: raw materials, components, and finished products.